Net Income
Total revenue minus all expenses, taxes, and costs - the bottom line profit.
Net income is what remains after subtracting all costs from total revenue—COGS, operating expenses, interest, taxes, and depreciation. It flows into retained earnings on the balance sheet, building or eroding owner's equity. A positive net income means profitability; a negative one (net loss) means expenses exceeded revenue.
Formula
Net Income = Total Revenue − Total Expenses (including COGS, operating costs, interest, and taxes)Example
A tutoring company earns $300,000 in annual revenue, subtracts $80,000 in tutor wages, $50,000 in operating expenses, and $42,000 in taxes for a net income of $128,000.
Why It Matters for Your Business
Net income is the ultimate measure of whether your business is making or losing money, determining how much you can reinvest, save, or take as compensation.
Practical Tips
- •Don't confuse net income with cash flow—you can be profitable on paper while running low on cash.
- •Track net income as a percentage of revenue (net margin) to measure efficiency over time.
Related Terms
More Accounting Terms
Accounts Payable
Money owed by a business to its suppliers or creditors for goods or services received but not yet paid for.
Accounts Receivable
Money owed to a business by its customers for goods or services delivered but not yet paid for.
Accrual Accounting
An accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged.
Asset
Any resource owned by a business that has economic value and can provide future benefits.
Balance Sheet
A financial statement showing assets, liabilities, and equity at a specific point in time.
Related Financial Guides & Resources
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